Prediction: Upstart Will Soar Over the Next 5 Years. Here's 1 Reason Why.

Key Points

• Upstart’s loan volume has more than doubled over the past year.

• The newer loan verticals, auto and home loans, are perhaps the most exciting parts of the business.

• Home loans in particular could be a massive opportunity as interest rates fall.

• 10 stocks we like better than Upstart ›

Even though its stock fell after earnings, Upstart's (NASDAQ: UPST) business is doing incredibly well, even in a challenging environment for lending. The company's loan origination volume increased by an incredible 154% year over year, an acceleration over the prior quarter's already impressive growth rate. Plus, Upstart surprised investors by reporting positive net income for the first time in several years.

To be fair, there are some concerns, and the stock didn't fall for no reason. Upstart is approving a greater percentage of its applicants than in previous quarters and is also carrying 25% more loans on its balance sheet compared with the first quarter. These factors can add to the perceived risk level.

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However, I'm confident that Upstart will handily outperform the S&P 500 over the next five years. And there is one big reason why.

Image source: Getty Images.

Upstart's new verticals are amazing opportunities

Upstart launched auto lending several years ago, but it is now starting to gain serious traction. Auto loan originations have increased sixfold over the past year and are becoming more of a major component of the business. More recently, Upstart launched home loans (specifically home equity lines of credit), and this vertical grew by 67% over the past quarter alone.

These are two massive opportunities. The auto loan industry is more than five times the size of the personal loan industry, and the home loan industry is even larger. Plus, with rates forecast to gradually decline over the next few years, demand for home equity lending could soar. After all, U.S. homeowners are sitting on more than $35 trillion in equity -- the highest level ever.

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Matt Frankel has positions in Upstart and has the following options: short December 2025 $95 calls on Upstart. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.